Canada convinced Trump will pull out of free trade deal

11 January, 2018

Mexican auto production and exports hit a record high in 2017, far outpacing growth in 2016, despite fears that shipments could be hurt by a renegotiation of the North American Free Trade Agreement (NAFTA) with top trading partners the United States and Canada.

The sixth round of NAFTA negotiations are slated to begin January 23 in Montreal. Kansas City Southern fell as much as 4.6 per cent after the report, its biggest loss in more than eight months.

The report briefly roiled the Canadian dollar and stocks and pushed down the Mexico peso - providing a look into what might happen if Trump follows through on his previous threats to leave NAFTA.

General Motors Co. slid as much as 3.3% while auto-parts stocks also fell, paced by Lear Corp. down as much as 3.8% and Magna International Inc. down 4.9%.

In response to the Reuters story, the White House said "there has been no change in the President's position on NAFTA", which offered little clarity as Trump has routinely threatened to walk away if he can not extract concessions from the other two trade partners. It is more likely a "zombie NAFTA" will continue even if Trump pulls out, as such an action could be held up in the USA court system and members of congress would have to authorize the addition of new tariffs on goods from Canada. The peso fell as much as 0.9 per cent to 19.3963 per United States dollar, before rebounding later in the day.

Despite those preparations for a possible pullout, Canada will stay at the negotiation table even if Trump makes that call, those sources said, speaking on the condition of anonymity.

- How has the market performed over the last five years?

Any of the three countries can pull out of NAFTA if they give six months' notice, but the agreement remains in effect. The Canadian officials said Wednesday they were not sure how Mexico would react to any withdrawal notice, but that Canada would keep negotiating after one was given.

Mexican Economy Minister Ildefonso Guajardo has said his country won't negotiate under duress and will leave the table if the USA initiates the withdrawal process.

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